RAKESHKUMAR S. KHANDELWAL, MUMBAI V. ACIT - 13(2)(2), MUMBAI

ITA 2952/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8984 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Accommodation entries

Judgement Text

1 ITA NO.2952/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2952/MUM/2016 (ASSESSMENT YEAR 2011-12) SHRI RAKESHKUMAR S KHANDELWAL, B-605, USHA NAGAR, VILLAGE ROAD, BHANDUP (W), MUMBAI 400 078 PAN : AABPK0310L VS ITO, 13(2)(2), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY MS. RUCHI M RATHOD RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 24-10-2017 DATE OF PRONOUNCEMENT 27-10-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 28, MUMBAI DATED 05-02-2016 AND IT PERTAINS TO AY 2 011-12. 2. T HE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF RICHA STEELS, ENGAGED IN THE BUSINESS OF TRADING IN IRON & STEEL. THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2011-12 ON 30-09-2011 DECLARING TOTAL INCOME OF RS.12,90,080/- . THE AO RECEIVED INFORMATION FROM THE INVESTIGATION WING THAT THE AS SESSEE HAS ENTERED INTO 2 ITA NO.2952/MUM/2016 BOGUS PURCHASE TRANSACTIONS WITH SIX PARTIES, VIZ. CHETANA ENTERPRISES, DIAMOND TRADERS, DONNIES TRADING P LTD, N.R. TRADER S, TRISHA ENTERPRISES, MERCURY ENTERPRISES, TOTALING TO RS.3,21,36,571/-. DURING THE ASSESSMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO PRO DUCE DETAILS OF PURCHASES MADE FROM THE ABOVE PARTIES ALONG WITH NECESSARY EV IDENCES. THE AO ALSO REQUIRED THE ASSESSEE TO PRODUCE PARTIES IN PERSON ALONGWITH NECESSARY EVIDENCES. THE ASSESSEE HAS FILED INVOICES ALONG W ITH PAYMENT PROOF. HOWEVER, NO PROOF LIKE LORRY DETAILS, TRANSPORTATIO N DETAILS, EXCISE GATE PASS, ETC. WAS PRODUCED. THE ASSESSEE ALSO COULD NOT PRO DUCE THE PARTIES BEFORE THE AO FOR EXAMINATION. THE AO, BASED ON THE INFORMATI ON RECEIVED FROM THE INVESTIGATION WING, COUPLED WITH FURTHER ENQUIRIES CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, CAME TO THE CONCL USION THAT PURCHASES FROM ABOVE PARTIES ARE BOGUS IN NATURE AND ACCORDINGLY R EJECTED BOOKS OF ACCOUNT U/S 145(3) AND ESTIMATED NET PROFIT AT 25% ON TOTAL BOGUS PURCHASES FROM ABOVE SIX PARTIES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE CIT(A) AND REITERATED ITS SUBMISSIONS MADE BEFORE THE AO. THE ASSESSEE FURTHER CONTENDED THAT THE AO WAS ERRED IN ESTIMATI NG NET PROFIT AT 25% OF THE ALLEGED BOGUS PURCHASES. THE ASSESSEE ALSO CONTEND ED THAT THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN STOCK REGISTERS OR M AKE OUT ANY CASE OF SALES 3 ITA NO.2952/MUM/2016 MADE OUTSIDE THE BOOKS OF ACCOUNT. THE AO NEVER DI SPUTED SALES DECLARED BY THE ASSESSEE. IN THE ABSENCE OF ANY INCORRECTNESS IN THE BOOKS OF ACCOUNT, IT IS INCORRECT ON THE PART OF THE AO TO TREAT PURCHASES FROM ABOVE PARTIES AS BOGUS, MERELY ON THE BASIS OF INFORMATION RECEIVED FROM IN VESTIGATION WING. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECI SION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT LTD 355 ITR 290 (GUJ) AND ALSO CIT VS SIMIT P SHETH 356 ITR 451 (GUJ) SCALED DOWN ESTI MATION OF NET PROFIT TO 12.5%. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) WAS ERRED IN ESTIMATING NET PROFIT AT 12.5% ON THE ALLEGED BOGUS PURCHASES IGNORING EVIDENCES FILED BY THE ASSESSEE TO PROVE THE GENUIN ENESS OF PURCHASES. THE LD.AR FURTHER SUBMITTED THAT THE NET PROFIT ESTIMAT ED BY THE CIT(A) IS ON HIGHER SIDE WHEN COMPARED TO THE NATURE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE IS IN THE BUSINESS OF TRADING IN IRON & STEEL WHERE HE DERIVES NET PROFIT OF 0.32% TO 0.52%. THE ASSESSEE FURTHER CONTENDED THAT IT H AS FURNISHED COMPLETE DETAILS OF PURCHASES AND SALES AND THE AO HAS NOT P OINTED OUT ANY DISCREPANCY IN QUANTITATIVE DETAILS OF ITEMS TRADED BY THE ASSE SSEE. THEREFORE, HE REQUESTED TO REDUCE THE NET PROFIT ESTIMATED BY THE CIT(A). THE LD.AR FURTHER CONTENDED THAT THE ASSESSEE HAS PAID VAT AFTER THE ASSESSMENT ORDER WAS 4 ITA NO.2952/MUM/2016 FINALIZED BY THE SALES-TAX DEPARTMENT IN RESPECT OF PURCHASES FROM THOSE SIX PARTIES AS THE SALES-TAX DEPARTMENT HAS DENIED INPU T CREDIT, THEREFORE, REQUESTED TO GIVE CREDIT FOR VAT PAID ON TOTAL PURC HASES FROM THE ABOVE PARTIES. 5. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED TH E ORDER OF CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO HAS ESTIMATED NET PROFIT OF 25% ON TOTAL ALLEGED BOGUS PURCHASES FROM SIX PARTIES ON THE GROUND THAT THE PURCHASES FROM THOSE PARTIES WERE BOGUS IN NATURE AS THE PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. ACCOR DING TO THE AO, THOUGH THE ASSESSEE HAS FURNISHED PURCHASE BILLS AND PAYMENT P ROOF, FAILED TO FURNISH FURTHER EVIDENCES LIKE LORRY RECEIPTS, WEIGHMENT SL IPS AND EXCISE GATE PASS TO PROVE THE GENUINENESS OF PURCHASES. THE ASSESSEE C ONTENDS THAT NET PROFIT DETERMINED BY THE CIT(A) IS ON HIGHER SIDE WHEN COM PARED TO THE NATURE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE FURTHER CON TENDED THAT HE IS ENGAGED IN TRADING IN IRON AND STEEL WHERE HE DERIVES A NET PROFIT MARGIN OF 0.32% TO 0.52% AS AGAINST THIS, THE CIT(A) HAS DETERMINED TH E NET PROFIT AT 12.5%. THE ASSESSEE FURTHER CONTENDED THAT HE HAD FURNISHED CO MPLETE DETAILS OF QUANTITATIVE DETAILS OF STOCK. THE AO HAS NOT POIN TED OUT ANY DISCREPANCY IN STOCK DETAILS. THE AO, NEITHER DISPUTED SALES DECL ARED BY THE ASSESSEE NOR 5 ITA NO.2952/MUM/2016 MADE OUT ANY CASE OF SALES MADE OUTSIDE THE BOOKS O F ACCOUNT. THEREFORE, ESTIMATION OF NET PROFIT AT 12.5% ON TOTAL SUCH PUR CHASES IS TOTALLY INCORRECT. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FAILED TO PROVE THE PURCHASES FROM SIX PARTIES AS GENUINE IN THE BACKDROP OF CLEAR FINDINGS OF THE AO THAT TH E PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THIS IS FURTHER S TRENGTHENED BY THE FACT THAT THE SALES-TAX DEPARTMENT HAS DEMANDED ADDITIONAL TA X FROM THE ASSESSEE ON TOTAL PURCHASES FROM THOSE SIX PARTIES IN THEIR ASS ESSMENTS. THE SALES-TAX DEPARTMENT HAS DENIED INPUT TAX CREDIT ON THE SO-CA LLED PURCHASES FROM THE ABOVE PARTIES. FROM THE ABOVE FACTS, IT IS EVIDENT THAT PURCHASES FROM THOSE SIX PARTIES WERE NOT GENUINE. AT THE SAME TIME, IT IS ALSO AN UNDISPUTED FACT THAT THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN BOOKS OF ACCOUNT OR STOCK DETAILS FURNISHED BY THE ASSESSEE. THE ASSESSEE HA S FURNISHED COMPLETE DETAILS OF STOCKS. THE AO HAS NEVER DISPUTED SALES DECLARE D BY THE ASSESSEE. IN THE ABSENCE OF ANY INCORRECTNESS IN BOOKS OF ACCOUNT OR STOCK DETAILS, ADDITION CANNOT BE MADE TOWARDS BOGUS PURCHASES ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING. UNDER THESE FACTS, WHAT N EEDS TO BE TAXED IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. VARIOUS COURTS AND TRIBUNALS, IN CASE OF BOGUS PURCHASES HAVE TAKEN A CONSISTENT VIE W THAT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE TAXE D. THE AHMEDABAD 6 ITA NO.2952/MUM/2016 BENCH OF THE TRIBUNAL, IN THE CASE OF CIT VS VIJAY PROTEINS LTD 58 ITD 428 (AHD), UNDER SIMILAR SET OF FACTS, DIRECTED THE AO TO ESTI MATE NET PROFIT OF 12.5%. IN THE CASE OF CIT VS SIMIT P SHETH (SUPRA), THE HONB LE GUJARAT HIGH COURT OBSERVED THAT NO UNIFORM YARDSTICK CAN BE APPLIED F OR ESTIMATION OF NET PROFIT AS IT IS DEPENDENT UPON FACTS AND CIRCUMSTANCES OF EACH CASE. THE CO-ORDINATE BENCH OF ITAT, MUMBAI HAS TAKEN A CONSISTENT VIEW A ND DIRECTED THE AO TO ESTIMATE 12.5% NET PROFIT ON BOGUS PURCHASES. THER EFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO IN VIE W OF THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL, WE ARE OF THE VIEW THAT IT I S FAIR AND REASONABLE TO ESTIMATE 12.5% NET PROFIT ON ALLEGED BOGUS PURCHASE S. THE CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DIRECTED THE AO TO ESTIMATE THE NET PROFIT OF 12.5% ON THE ALLEGED BOGUS PURCHASES. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF CIT|(A); HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE . 8. COMING TO THE ALTERNATIVE SUBMISSION OF THE ASSESSE E THAT HE HAS PAID ADDITIONAL VAT ON ALLEGED BOGUS PURCHASES FROM THOS E SIX PARTIES, AFTER FINALIZATION OF ASSESSMENT ORDERS BY THE SALES-TAX DEPARTMENT. THE ASSESSEE FURTHER SUBMITTED THAT THE SALES-TAX DEPARTMENT HAS DENIED INPUT TAX CREDIT ON PURCHASES FROM THOSE SIX PARTIES FOR WHICH THE ASSE SSEE HAS PAID VAT. THEREFORE, CREDITS NEED TO BE GIVEN FOR VAT PAYMENT OUT OF NET PROFIT 7 ITA NO.2952/MUM/2016 ESTIMATED ON TOTAL ALLEGED BOGUS PURCHASES. WE FIN D FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IF THE ASSESSEE HA D PAID ADDITIONAL VAT ON PURCHASES FROM THOSE SIX PARTIES, CREDIT NEEDS TO B E GIVEN FOR VAT PAYMENT OUT OF NET PROFIT ESTIMATED. THE ASSESSEE HAS FILED NO TICE OF DEMAND AND ASSESSMENT ORDER PASSED BY VAT AUTHORITIES ALONGWIT H PAYMENT DETAILS TO JUSTIFY ADDITIONAL PAYMENT OF VAT ON THOSE PURCHASE S. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE CLAIM OF ASSESSEE THAT IT HAS PAID ADDITIONAL VAT O N PURCHASES FROM THOSE SIX PARTIES. HENCE WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION WHETHER THE ASSESSEE HAS PA ID ADDITIONAL VAT ON PURCHASES FROM THOSE SIX PARTIES ON DENIAL OF INPUT TAX CREDIT BY SALES-TAX DEPARTMENT. IF THE CLAIM OF THE ASSESSEE IS FOUND TO BE CORRECT, THEN THE AO IS DIRECTED TO ALLOW CREDIT FOR PAYMENT OF VAT ON PURC HASES FROM THOSE SIX PARTIES OUT OF NET PROFIT DETERMINED ON THE ALLEGED BOGUS PURCHASES. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED, FOR STATISTICAL PURPOSE. 8 ITA NO.2952/MUM/2016 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH OCTOBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. 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